Germany upbeat on its economy this year

Wednesday 12 February 2014 18.46
German economy forecast to expand by 1.8% this year
German economy forecast to expand by 1.8% this year

The German government expects economic growth to pick up sharply this year and next, which will benefit Europe as a whole, it said in a new report.
 
"The German economy has moved into a stable and broad-based recovery," said economy minister Sigmar Gabriel, presenting the government's annual economic report.

"Buoyed by domestic demand, German gross domestic product (GDP) should expand by 1.8% this year. And in 2015, growth will pick up further to an anticipated 2%," Gabriel said.

The increasing momentum, particularly of domestic demand, "is not only good news for Germany, but also for our European partners. We are moving closer to our goal of correcting the economic imbalances in the euro area," the minister said.

"Imports will rise faster than exports this year and this will reduce the current account balance," he argued.  "Rising imports and increased investment abroad will aid economic recovery in Europe," he added.  

The comments were aimed at recent criticism that Germany's economic prowess comes at the expense of the euro zone's weaker members.

Critics argue that Germany needs to boost domestic demand and so help its EU partners by spurring export-driven growth in their economies rather than continue to rely mostly on its own exports for growth. 

Berlin has persistently dismissed the criticism, arguing that the high surplus reflects the competitiveness of German firms.

Gabriel said the current robustness of the labour market played "a key role for the momentum of domestic demand." 

Unemployment in Germany is currently close to all-time lows and employment, too, is rising to new records, with the number of people in work projected to rise by 240,000 to 42.1 million this year. 

"Favourable growth and earnings prospects for companies are causing recruitment and wages to rise," the report said. 

"This is translating into noticeable increases in income for private households. In view of the favourable conditions, households are expanding their spending on consumption and on home construction." 

Germany's latest forecasts are marginally more optimistic than those of the International Monetary Fund and the Bundesbank, or German central bank, which are predicting growth of 1.6% and 1.7% respectively this year.
 
But the powerful BDI industry federation is more optimistic still, pencilling in growth of as much as 2% already this year. 

Minister Gabriel warned, however, that there were also downside risks. They could be of an external nature, such as a possible downturn in Europe or insufficient regulation of the financial markets. 
 
But Germany also had home-grown challenges, such as the lack of qualified personnel, high energy prices and sluggish investment in both the private and public sectors, the minister noted.